DOS, 2/6/80. Dealers Ass'n v. Midcal Aluminum, Inc. MR. JUSTICE POWELL delivered the opinion. of the Court: court

Transcription

1 DOS, 2/6/80 No , California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc. MR. JUSTICE POWELL delivered the opinion of the Court: court rpresented a successful ( ~ I.{California's resale price maintenance and price posting statutes for the wholesale wine trade. The issue in this case is whether those state laws are shielded from the Sherman Act by either the "state action" doctrine of Parker v. Brown, 317 U.S. 341 (1942), or 2 of the Twenty-first Amendment. I Under 24866(b) of the California Business and Professions Code, all wine producers,

2 2. schedule for that producer's brands. Id., 24866(a). No state-licensed wine merchant may sell wine to a retailer at other than the price set "either in an effective price schedule or in an effective fair trade contract. II Id., 24866(a). For administration of the wine price program, the State is divided into three trading areas. A single fair trade contract or schedule filed within a trading area sets the terms for all wholesale transactions in that trading area involving that brand of wine. Cal. Bus. & Prof. Code Ann , (West Supp. 1979). All wholesalers within a trading area are bound by ~ 1 ~ ~~ r~ "J".e'-t.fi.~"tJtA,o theaprices posted, by [ a singl ~ distributor. Midcal jl'\ tlo.. W'f. I< ~I Aluminum, Inc. v. Rice, 90 Cal. App. 3d 979, (1979). A licensee not meeting these requirements may face fines, license suspension, or outright revocation. Cal. Bus. & Prof. Code Ann. ) _.;

3 ! was j charged by the Department of Alcoholic Beverage Control with selling 27 cases of wine at 3. ~o/- ~... 10tj ~ ~ less than the prices set by the effective price schedule of the E & J Gallo Winery. A second count alleged that Midcal sold wines for which no fair trade contract or schedule had been filed with the State. Respondent stipulated that the allegations were true and that the State could fine it or suspend its license for those transgressions. Jt. App, at Midcal then sought to enjoin the ~ State's wine pricing system with a writ of mandate?. from the California Court of Appeal for the Third Appellate District. The state court ruled that the wine pricing scheme restrains trade in violation of the Sherman Act. 1 5 U.S. C. 1, et seq. The court relied entirely on the reasoning of the California Supreme Court in Rice v. Alcoholic Beverage Control Appeals Board, 21 Cal. 3d 431, 579 P.2d 476 (1978),

4 4. Parker v. Brown immunity for the program. "In the price maintenance program before us, the state plays no role whatever in setting the retail prices. The prices are established by the producers according to their own economic interests, without regard to any actual or potential anticompetitive effect; the state's role is restricted to enforcing the prices specified by the producers. There is no control, or 'pointed reexamination,' by the state to insure that the policies of the Sherman Act are not 'unnecessarily subordinated' to state T?Olicy." 21 Cal. 3d, at 445, 579 P.2d, at 486. Rice also rejected the claim that California's liquor price policies were protected by 2 of the Twenty-first Amendment, which

5 5. in 1 iquor price maintenance the promotion of temperance and the preservation of small retail establishments. The state supreme court emphasized that the California program not only permitted vertical control of prices by producers, but also frequently resulted in horizontal price-fixing. Under the program, many comparable brands of liquor were marketed at identical prices. }/ Referring to congressional and state legislative studies, the court observed that resale price maintenance has little positive impact on either temperance or small retail stores. See p., infra. In the instant case, the state Court of Appeal found the analysis in Rice squarely controlling and ruled that the system of wine pricing unlawfully restrains trade. 90 Cal. App., at 984. The court ordered the Department of Alcoholic Beverage Control not to enforce the resale price maintenance and price posting

6 6. Association ( CRLDA), an intervenor. The California Supreme Court declined to hear the case, and the CRLDA sought certiorari from this Court. We granted the writ, u.s. ( 1979), and now affirm the decision of the state court. II The threshold question is whether California's policy for wine pricing violates the Sherman Act. This Court has ruled consistently that resale price maintenance illegally restrains trade. Dr. Miles Medical Co. v. Park & Sons Co., U S 3 7 3, ( ), pointed out that such arrangements are "designed to maintain prices., and to prevent competition among those who trade in them." See Simpson v. Union Oil Co., 377 U.S. 13 (1964); United States v. Parke, Davis & Co., 362 u.s. 29 (1960); United States v. Schrader's Son, Inc., 252 U.S. 85 (1920). For many years, though,

7 7. ~A;/ Congress ~t might otherwise be driven from the marketplace by large-volume discounters. But in 1975 that congressional permission was rescinded. The Consumer Goods Pricing Act of 1975, 89 Stat. 801, repealed Miller-Tydings and related legislation. ) Consequently, the Sherman Act's ban on resale price maintenance now applies to fair trade contracts unless an industry or program enjoys a special antitrust immunity. California's system for wine pricing plainly constitutes resale price maintenance in violation of the Sherman Act. Schwegmann Bros. v. Calvert Corp., 341 U.S. 384 (1951). The wine producer holds the power to dictate prices charged by wholesalers and thereby to prevent price competition. As Mr. Justice Hughes pointed out in nu_ ~ c.. <::.,?~ o v./. 1'1\(t<t, )~ ~v. S~) 5 vo w;, -z..tt ( t1sj. ' e.s ~ G,J o/, Dr. Miles ~;>.11_, such vertical control destroys horizontal competition among wholesalers and retailers as effectively as "if they formed a

8 8. the Sherman Act as regulation with no interstate impact. See Schwegmann Bros. v. Cal vert Corp., supra; Burke v. Ford, 389 U.S. 320 (1967) (per curiam). Thus, we must consider whether the State's involvement in the price-setting program is sufficient under Parker v. Brown to establish antitrust immunity. That immunity for state regulatory programs is grounded in our federal structure. 11 In a dual system of government in which, under the Constitution, the states are sovereign, save only as Congress may constitutionally subtract from their authority, an unexpressed purpose to nullify a state's control over its officers and agents is not lightly to be attributed to Congress. 11 Parker v. Brown, supra, 317 u.s., at In Parker, this Court found in the Sherman Act no purpose to nullify state powers. Because the Act is directed against

9 9. state Agricultural Prorate Advisory Commission authorized the organization of local cooperatives to develop marketing raisin crop. The Court the Advisory Commission, which was appointed by the governor, had to approve cooperative policies following public hearings: "It is the state which has created the machinery for establishing the prorate program [I]t is the state, acting through the Commission, which adopts the program and enforces it. II Id., at 352. In view of this extensive official oversight, the Court wrote, the antitrust laws did not apply. Without such oversight, the result could have been different. The Court expressly noted, "[A] state does not give immunity to those who viol ate the Sherman Act by authorizing them to violate it, or by declaring that their action is lawful." Id., at 351. Several recent decisions have applied

10 1 0 0 established by s~~ the ' s tate C~l?-b-5. '\ 11 It is not enough that anticompetitive conduct is 'prompted' by state action; rather, anticompetitive conduct must be compelled by direction of the State acting as sovereign... Id., at 791. Similarly, in Cantor v. Detroit Edison Co., 428 U.S. 579 (1976), a majority of the Court found that no antitrust immunity was conferred by a state agency's passive acceptance of a public utility's tariff. In contrast, the Arizona rules against lawyer advertising were held to be immune from Sherman Act challenge because they 11 reflect[ed] a clear articulation of the State's policy with regard to professional behavior.. and were 11 Subject to pointed reexamination by the policymaker the Arizona Supreme Court in enforcement proceedings... Bates v. State Bar of Arizona, 433 U.S. 350 (1977). Only last Term this Court found antitrust immunity for a California program requiring state approval

11 11. and affirmatively expressed" goal was to "displace unfettered business freedom in the matter of the establishment and relocation of automobile dealerships." Id., at 109. These decisions establish two standards for antitrust immunity under Parker v. Brown. First, the challenged restraint must be "one clearly articulated and affirmatively expressed as state policy": second, the policy must be "actively supervised" by the State itself. City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 410 (1978). ~/ The California system for wine pricing satisfies the first standard. The legislative policy is forthrightly stated and clear in its purpose to permit resale price maintenance. The program, however, does not meet the second requirement for Parker immunity. The State simply authorizes price-setting and enforces the prices established by private parties. The governmental

12 1 3. is hereby prohibited." u.s. Const., Amend. XXI. The remaining question before us is whether 2 permits California to countermand the congressional pol icy -- adopted under the commerce power -- in favor of competition. A. In determining State powers under the Twenty-first Amendment, this Court has focused on the language of the provision rather than the history behind it. State Board v. Young's Market Co., 299 U.S. 59, (1936). ~ --KL In terms, the amendment gives the States control over the "transportation or importation" of liquor into the States. Of course, such control logically entails considerable regulatory powers not strictly limited to importing and transporting alcohol. Z if r in v. Reeves, U. S , ( ) We should not, however, lose sight of the explicit ---

13 1 4. a State from other jurisdictions. Young's Market, supra, concerned a license fee for interstate imports of alcohol; another case focused on a law restricting the types of liquor that could be imported from other States, Mahoney v. Joseph Triner Corp., 304 U.S. 401 ( 1938); two others involved "retaliation" statutes barring imports from States that proscribed shipments of liquor from other States, Indianapolis Brewing Co. v. Liquor Control Comm'n, 305 U.S. 391 (1939); Joseph F. Finch & Co. v. McKittrick, 305 U.S. 395 (1939). The Court upheld the challenged state authority in all four cases, largely on the basis of the amendment's grant of state power over the "importation and transportation" of intoxicating liquors. Yet even in those special circumstances, the Court resisted the contention that 2 "freed the States from all restrictions upon the pol ice power to be found in other provisions of the

14 1 5. Sons v. Hostetter, 384 U.S. 35, 45 (1966), but also have stressed that important federal interests in liquor matters survived the ratification of the Twenty-first Amendment. That provision does not prevent federal action with respect to liquor under the Export-Import Clause. Department of Revenue v. James Beam Co., 377 u.s. 341 (1964). Nor can the state insulate the liquor industry from the Fourteenth Amendment's requirements of equal protection, Craig v. Boren, 429 U.S. 190 (1976), or due process, Wisconsin v. Constantineau, 400 U.S. 433 (1970). More difficult to define, however, is congressional control over liquor under its interstate commerce power. Although that power is directly qualified by 2, the Court has held that the federal government retains some Commerce Clause authority over liquor. In William Jameson & Co. v. Morgenthau, 307 U.S. 171 (1939) (E_er curiam),

15 1 6. Reeves, supra, the Court did not uphold Kentucky's system of licensing liquor haulers until it was satisfied that the State program was reasonable. Id., at The contours of Congress' commerce power over liquor were sharpened in Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S. 324, (1964). "To draw a conclusion that the Twenty-first Amendment somehow operated to 'repeal' the commerce clause wherever regulation of intoxicating liquors is concerned would, however, be an absurd oversimplification. If the commerce clause had been pro tanto 'repealed,' then Congress would be left with no regulatory power over interstate or foreign commerce in intoxicating liquor. Such a conclusion would be

16 1 7. the commerce clause are parts of the Constitution. Like other provisions of Constitution, each must be considered in the of the other, and in the context of the issues and interests at stake in any concrete case." Id., at 332. See Craig v. Boren, 429 u.s. 190 (1976). ~ This pragmatic effgr~. 1'\ vz.d..tr ~ tk ~ ~ to harmonize state and federal powers has been evident in the Court's treatment of Sherman Act suits implicating regulation of intoxicating States v. ) of liquor dealers -- s _llte law, -= n"'"*-1 C()t< ( tw-f' there a Sch manuf turer~ liquor ) ~ tributor to comply with Louisiana's resale---- price main enance

17 1 8. violated the Sherman Act and could not be enforced against the distributor. Fifteen years later, the '2: 1f/ Court rejected a Sherman Act challenge/'\a New York State requirement that 1 iquor dealers attest that their prices were "no higher than the lowest price" charged anywhere in the United States. Seagram & Sons v. Hostetter, 384 U.S. 35 (1966). Although the Court concluded that the statute exerted "no irresistable economic pressure on the appellants to violate the Sherman Act in order to comply," it also pointed out that "[n]othing in the Twentyfirst Amendment, of course, would prevent the enforcement of the Sherman Act" against an interstate conspiracy to fix prices. Id., at 45. See Burke v. Ford, 389 u.s. 320 (1967) (per curiam). These decisions demonstrate that there is no bright 1 ine between federal and state powers over liquor. The Twenty-first Amendment grants the

18 1 9. liquor regulations, but those controls may also be subject to federal commerce power regulation in appropriate situations. In these other areas, the state and federal interests can be reconciled only after careful scrutiny of those concerns in a "concrete case." Idlewild, supra, at 332. B The federal interest in enforcing the national policy in favor of competition is both familiar and substantial. "Anti trust laws in general, and the Sherman Act in particular, are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free-enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms." United States v. Topco Assoc., 405 U.S. 596, 610

19 20. "exercis[ed] all the power it possessed" under the commerce clause when it approved the Sherman Act. Atlantic Cleaners & Dyers v. United States, 286 U.S. 425, 435 ( 1932): see City of Lafayette v. Louisiana Power & Light Co., supra, 495 U.S., at We must acknowledge the importance of the Act's procompetition policy. Our view of California's interests in its wine pricing system is shaped in part by the unusual posture of this case. As we noted, the state agency that administers the program did not appeal the decision of the California Court of Appeal. See p. supra: Tr. of Oral Arg. 20. Instead, this action has been maintained by the CRLDA, a private intervenor. State Attorney General, who t X. (._~ ~~..:f filed a...,b_r_l_e~- V\ot k&.."' ">f,. (~tv I..J.<). l.u'..._-'- ~'7 v.. :.J-/,pA.. C g L I> A ~ amicus curicl~;: ::luis:. 2 ;?7 d t he' ±H?Pert ef f19s, eg i slath e ssh \ O,.lfc-'tw~-- protected by ~sale particular state interests price maintenance syst~

20 21. Court to the extent they undercut state rights guaranteed by the Twenty-first Amendment. See Hooven & All~ Co. v. Evatt, 3 24 u.s. 652, 659 (1945); Creswill v. Knights of Pythias, 225 U.S. 246, 261 (1912). Nevertheless, this Court accords "respectful consideration and great weight to the views of the state's highest court" on matters of state law, Indiana ex rel. Anderson v. Brand, 303 U.S. 95, 99 (1938), and we customarily accept the factual findings of state courts in the absence of "exceptional circumstances." Fry Roofing Co. v. Wood, U. S. 1 57, ( ) The California Court of Appeal stated that its review of the state's system of wine pricing was "controlled by the reasoning of the [California] Supreme Court in Rice [v. Alcoholic Beverages Control Board, 21 Cal. 3d 431, 579 P.2d, 476 (1978)]." 90 Cal. App. 3d, at 983. Therefore, we turn to that opinion's treatment of the state

21 22. promote temperance and orderly market conditions." Id., at 451: 579 P.2d, at 493. ~ The court found little correlation between resale price maintenance and temperance. It cited a state study showing a 42 % increase in per capita liquor consumption in California from 1950 to 1972, while resale price maintenance was in effect. Id. at , 579 P.2d, at 494, citing California Dept. of Finance, Alcohol and the State: A Reappraisal of California's Alcohol Control Program xi, 15 (1974). Such studies, the court wrote, "at the very least raise a doubt regarding the justification for such laws on the ground that they promote temperance." Ibid. The Rice opinion identified the state interest in orderly market conditions as "protect[ing] small licensees from predatory pricing policies of large retailers" and, again, temperance. Id. at 456, 579 P.2d, at 493. The

22 23. argument that fair trade laws were necessary to the economic survival of small retailers." Ibid. The Appeals Board had relied on a congressional study of the impact on small retailers of fair trade laws enacted under the Miller-Tydings Act. That report found that "states with fair trade laws had a 55 per cent higher rate of firm failures than free trade states, and the rate of growth of small retail stores in free trade states between 1956 and was 3 2 per cent higher than in states with fair trade laws." Ibid., citing S. Rep. No , 94th Cong., 1st Sess. 3 (1975). Pointing to the congressional abandonment of fair trade in the 1975 Consumer Goods Pricing Act, the state Supreme Court found no persuasive justification to continue "fair trade laws which eliminate price competition among retailers." Id., at 457, 579 P.2d, at 494. That conclusion was adopted by the Court of Appeal for the wholesale wine trade. 90 Cal. App. 3d., at

23 24. in favor of competition. That evaluation of the State's stake in resale price maintenance for wine is rea son abl'jl' ~ tl=!: i ers, ~bo..r~~ ~ it t~ ~ ~ ~ $t~ )~ ~.eb11: 7 W.~...,..!!"'~~~-.!iM!l-.:~d!::bee-A-- ~f ~ ~~ ) 'JC'.eiu.telil :a.~~::-t:h'1t -cou-rt. We conclude that the California Court of Appeal decided that the Twenty-first Amendment provides no shelter for the violation of the Sherman Act caused by the State's wine pricing program. ~ Appeal, Third Appellate District, is Affirmed..J

24 DOS, 2/6/80 No , Midcal, Footnotes ll The statute provides: "Each wine grower, wholesaler licensed to sell wine, wine rectifier and rectifier shall: " (a) Post a schedule of selling prices of wine to retailers or consumers for which his resale price is not governed by a fair trade contract made by the person who owns or controls the brand. "(b) Make and file a fair trade contract and file a schedule of resale prices, if he owns or controls a brand of wine resold to retailers or consumers." Cal. Bus. & Prof. Code Ann (West Supp. 1979).

25 I FN2. 3/ The court cited record evidence that in July 1976 five leading brands of gin all sold in California for $4.89 for a fifth of a gallon, and that five leading brands of scotch whiskey sold for either $8.39 or $8.40 a fifth. Rice v. Alcoholic Beverage Control Appeals Board, 21 Cal. 3d 431, 454 & nn. 14, 15, 579 P.2d 476, 492 & nn. 14, 15 (1978). 4/ The State also did not appeal the decision in Capiscean Corp. v. Alcoholic Beverages Control Bd., 87 Cal. App. 3d 996 (1979), which used the analysis in Rice to invalidate California's resale price maintenance scheme for retail wine sales to consumers. The California Retail Liquor Dealers Association (CRLDA), a trade association of independent retail liquor dealers in California,

26 FN3. repeal of general fair trade authority would not alter whatever power the States hold under the Twenty-first Amendment to control liquor prices. S. Rep. No , 94th Cong., 1st Sess. 2 (1975)~ H. Rep. No , 94th Cong., 1st Sess. 3, n.2 (1975). We consider the effect of the Twenty-first Amendment on this case in Part III, infra. 7 I In Rice, the California Supreme Court found direct evidence that resale price maintenance resulted in horizontal price fixing. See p. supra, & n.3. Although the Court of Appeal made no such specific finding in this case, the court noted that the wine pricing system "cannot be upheld for the same reasons the retail price maintenance provisions were declared invalid in Rice." Midcal Aluminum Co. v. Rice, 90 Cal. App. 3d 979, 983 (1979).

27 1 2. program. The national policy in favor of competition cannot be thwarted by casting such a gauzy cloak of state involvement over what is essentially a private price-fixing arrangement. As Parker teaches, "a state does not give immunity to those who violate the Sherman Act by authorizing them to violate it, or by declaring that their action is lawful." 317 U.S., at 351. III Petitioner contends that even if California's system of wine pricing is not protected state action, the Twenty-first Amendment bars application of the Sherman Act in this case j{ R~~~ ~fs ~+Lcf~ 4~5t~~~~ ~ '-t~ aljt~ t. ~~Jt~~~~ ~ J la. &&/ ~Ch~S~~~ ~k,~ rp4 f~ /1.:.-f ~ ~ivl 1/o ~ ~ ;4 jf-~ w~ ''&.~/ ~--4 f~ ~$./ r~ II~~,{ /j; ~~\ ~/JL~ v:~;fi 2dJ ~ '-' v. 0~ h I! r:. 7'37 1/- s: [ I / Section 1 of that constitutional provision repealed the Eighteenth Amendment's prohibition on liquor. The second section reserves to the States certain power to regulate traffic in liquor. "The transportation or

28 DOS, 2/12/80 No , California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc. MR. JUSTICE POWELL delivered the opinion of the Court(;) In a state court action, respondent Midcal Aluminum, Inc., a wine distributor, presented a successful antitrust challenge to California's resale price maintenance and price posting statutes for the wholesale wine trade. The issue in this case is whether those state laws are shielded from the Sherman Act by either the "state action" doctrine of Parker v. Brown, 317 U.S. 341 (1943), or 2 of the Twenty-first Amendment. I Under 24866(b) of the California

29 2. trade contract, wholesalers must post a resale price schedule for that producer's brands. Id., 24866(a). No state-licensed wine merchant may sell wine to a retailer at other than the price set 11 either in an effective price schedule or in an effective fair trade contract.. II Id., (West Supp. 1979). For administration of the wine pricing program, the State is divided into three trading areas. A single fair trade contract or schedule for each brand sets the terms for all wholesale transactions in that brand within a given trading area. Id., 24862, (West Supp. 1979). Similarly, the wine prices posted by a single distributor within a trading area bind all wholesalers in that area. Midcal Aluminum, Inc. v. Rice, 90 Cal. App. 3d 979, , 153 Cal. Rptr. 757, 762 (1979). A licensee selling below the established prices faces fines, license suspension,

30 3. dealers. Midcal Aluminum, Inc. is a wholesale distributor of wine in Southern California. In July 1978, the Department of Alcoholic Beverage Control charged Mid cal with selling 27 cases of wine for less than the prices set by the effective price schedule of the E & J Gallo Winery. The Department also alleged that Midcal sold wines for which no fair trade contract or schedule had been filed. Midcal stipulated that the allegations were true and that the State could fine it or suspend its license for those transgressions. App Midcal then sought to enjoin the State's wine pricing system with a writ of mandate from the California Court of Appeal for the Third Appellate District. The Court of Appeal ruled that the wine pricing scheme restrains trade in violation of the Sherman Act, 15 u.s.c. 1 et seq. The court

31 4. the sale of distilled liquors. In that case, the state Supreme Court found that because the State ~ played only a passive part in wine pricing, there was no Parker v. Brown immunity for the program. "In the price maintenance program before us, the state plays no role whatever in setting the retail prices. The prices are established by the producers according to their own economic interests, without regard to any actual or cj71::tential anticompetitive effect: the state's role is restricted to enforcing the prices specified by the producers. There is no control, or 'pointed reexamination,' by the state to insure that the policies of the Sherman Act are not 'unnecessarily subordinated' to state policy." 21 Cal. 3d, at 445, 579 P.2d, at 486.

32 5. from many federal restrictions. The court determined that the national policy in favor of competition should prevail over the state interests in 1 iquor price maintenance the promotion of temperance and the preservation of small retail establishments. The court emphasized that the California program not only permitted vertical control of prices by producers, but also frequently!"' resulted in horizontal pricefjixing. Under the program, many comparable brands of liquor were marketed at identical prices. 2/ Referring to congressional and state legislative studies, the court observed that resale price maintenance has little positive impact on either temperance or small retail stores. See p., infra. In the instant case, the state Court of Appeal found the analysis in Rice squarely controlling. 90 Cal. App., at 984, 153 Cal. Rptr, at 760. The court ordered the Department of

33 6. appeal the ruling in this case. _!L. An appeal was brought by the California Retail Liquor Dealers Association, an intervenor. _2/ The California Supreme Court declined to hear the case, and the Dealers Association sought certiorari from this Court. We granted the writ, u.s. ( 1979), and now affirm the decision of the state court. II The threshold question is whether California's policy for wine pricing violates the Sherman Act. This Court has ruled consistently that resale price maintenance illegally restrains trade. Dr. Miles Medical Co. v. Park & Sons Co., U S 3 7 3, ( ), pointed out that such arrangements are "designed to maintain prices., and to prevent competition among those who trade in [competing goods]." See Albrecht v. The Herald

34 7. permitted the States to authorize resale price maintenance. 50 Stat The goal of that statute was to allow the States to protect small r etail establishments that Congress thought might otherwise be driven from the marketplace by largevolume discounters. But in 1975 that congressional permission was rescinded. The Consumer Goods Pricing Act of 197 5, 89 Stat. 801, repealed the Miller-Tydings Act and related legislation. ~/ Consequently, the Sherman Act's ban on resale price maintenance now applies to fair trade contracts unless an industry or program enjoys a special antitrust immunity. California's system for wine pricing plainly constitutes resale price maintenance in violation of the Sherman Act. Schwegmann Bros. v. Calvert Corp., 341 U.S. 384 (1951); see Albrecht v. The Herald Co., supra; Kiefer-Stewart Co. v. Seagram & Sons, 340 U S 2 11 ( ) ; Dr M i 1 e s

35 8. Dr. Miles, such vertical control destroys horizontal competition among wholesalers and retailers as effectively as "if they formed a combination and endeavored to establish the same restrictions. by agreement with each other." 220 U.S., a~ 08. 7/ Moreover, there can be no claim that the California program is simply intrastate regulation beyond th reach of the Sherman Act. See Schwegmann Bros. v. Calvert Co~, supra; Burke v. Ford, 389 u-.s. 320 (1967) (per curiam). Thus, we must consider whether the State's involvement in the price-setting program is sufficient to establish anti trust immunity under Parker v. Brown, 317 u.s (1943). That immunity for state regulatory programs is grounded in our federal structure. "In a dual system of government in which, under the Constitution, the states are sovereign, save only as Congress may

36 9. v. Brown, this Court found in the Sherman Act no purpose to nullify state powers. Because the Act is directed against "individual and not state action," the Court concluded that state regulatory programs could not violate it. Id., at 352. Under the program challenged in Parker, the state Agricultural Prorate Advisory Commission authorized the organization of local cooperatives to develop marketing policies for the raisin crop. The Court emphasized that the Advisory Commission, which was appointed by the governor, had to approve cooperative policies following public hearings: "It is the state which has created the machinery for..._ establishing the prorate program "-- [I]t is the state, acting through the Commission, which adopts the program and enforces it II Id., at 352. In view of this extensive official oversight, the Court wrote, the Sherman Act did not apply. Without such oversight, the result could have been

37 1 0. Id., at 351. Several recent decisions have applied Parker's analysis. In Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975), the Court concluded that fee schedules enforced by a state bar association were not mandated by ethical standards established by the state Supreme Court. The fee schedules therefore were not immune from anti trust attack. "It is not enough that anticompetitive ~onduct is 'prompted' by state action; rather, anticompetitive conduct must be compelled by direction of the State acting as sovereign." Id., at 791. Similarly, in Cantor v. Detroit Edison Co., 428 U.S. 579 (1976), a majority of the Court found that no antitrust immunity was conferred when a state agency passively accepted a public utility's tariff. In contrast, Arizona rules against lawyer advertising were held immune from Sherman Act challenge because they "reflect [ed] a

38 11. proceedings." Bates v. State Bar of Arizona, 4 33 u.s. 350, 362 (1977). Only last Term this Court found antitrust immunity for a California program requiring state approval of the location of new automobile dealerships. New Motor Vehicle Bd. of Calif. v. Orrin W. Fox Co., 439 U.S. 96 (1978). That program provided that if an automobile franchisee protested against a proposed new or relocated dealership, the State would hold a hearing "to determine whether there is good cause to block the change." Id., at 103. In view of the State's active role, the Court held, the program was not subject to the Sherman Act. The "clearly articulated and affirmatively expressed" goal of the state policy was to "displace unfettered business freedom in the matter of the establishment and relocation of automobile dealerships." Id., at 109. These decisions establish two standards

39 1 2. supervised" by the State itself. City of Lafayette v. Louisiana Power & Light Co., 435 u.s. 389, 410 (1978) (opinion of BRENNAN, J. ). ~I The California system for wine pricing satisf ies the first standard. The legislative policy is forthrightly stated and clear in its purpose to permit resale price maintenance. The program, however, does not meet the second requirement for Parker immunity. The State simply authorizes price-setting and enforces the prices established by private parties. The State neither establishes prices nor reviews the reasonableness of the price schedules: nor does the government regulate the terms of fair trade contracts. The State does not monitor market conditions or engag~ in any "pointed reexamination" of the program. ~ The national policy in favor of competition cannot be thwarted by casting such a gauzy cloak of state involvement over what is essentially a private price-fixing

40 III Petitioner contends that even if California's system of wine pricing is not protected state action, the Twenty-first Amendment bars application of the Sherman Act in this case. Section 1 of that constitutional provision repealed the Eighteenth Amendment's prohibition on liquor. The second section reserves to the States certain power to regulate traffic in liquor: "The transportation or importation into any State, Terri tory, or possession of the United States for del ievery or use there in of intoxicating 1 iquors, in violation of the laws thereof, is hereby prohibited." The remaining question before us is whether 2 permits California to countermand the congressional policy -- adopted under the commerce power -- in favor of competition.

41 1 4. history behind it. State Board v. Young's Market Co., 299 u.s. 59, (1936). _l2l In terms, the Amendment gives the States control over the "transportation or importation" of liquor into their territories. Of course, such control logically entails considerable regulatory powers not strictly limited to importing and transporting alcohol. Ziffrin, Inc. v. Reeves, 308 u.s. 132, 138 (1939). We should not, however, lose sight of the explicit grant of authority. This Court's early decisions on the Twenty-first Amendment recognized that each State holds great powers over the importation of liquor from other jurisdictions. Young's Market, supra, concerned a license fee for interstate imports of alcohol; another case focused on a law restricting the types of 1 iquor that could be imported from other States, Mahoney v. Joseph Triner Corp., 304 U.S. 401 (1938); two others involved "retaliation"

42 u.s. 391 {1939). The Court upheld the challenged state authority in each case, largely on the basis of the States' special power over the "importation and transportation" of intoxicating liquors. Yet even when the States had acted under the explicit terms of the Amendment, the Court resisted the contention that 2 "freed the States from all restrictions upon the police power to be found in other provisions of the Constitution." Young's Market, supra, 229 U.S., at 64. Subsequent decisions have given "wide latitude" to state liquor regulation, Seagram & Sons v. Hostetter, 384 U.S. 35, 42 {1966), but they also have stressed that important federal interests in liquor matters survived the ratification of the Twenty-first Amendment. That provision does not allow the States to tax imported liquor in violation of the Export-Import Clause. Department of Revenue v. James Beam Co., 377 U.S. 341 {1964).

43 1 6. Constantineau, 400 U.S. 433, 436 (1970). More difficult to define, however, is the extent to which Congress can regulate liquor under its interstate commerce power. Although that power is directly qualified by 2, the Court has held that the Federal Government retains some Commerce Clause authority over liquor. In Jameson & Co. v. Morgenthau, 307 U.S. 171 (1939) (per curiam),this - Court found no violation of the Twenty-First Amendment in a whiskey labeling requirement prescribed by the Federal Alcohol Administration Act, 49 Stat. 977 (1935). And in Ziffrin, Inc. v. Reeves, supra, the Court did not uphold Kentucky's system of 1 icens ing 1 iquor haulers unti 1 it was satisfied that the State program was reasonable. Id., at The contours of Congress' commerce power over liquor were sharpened in Hostetter v. Idlewild Liquor Corp., 377 U.S. 324, (1964).

44 1 7. liquors is concerned would, however, be an absurd oversimplification. If the Commerce Clause had been pro tanto 1 repealed, 1 then Congress would be left with no regulatory power over interstate or foreign commerce in intoxicating liquor. Such a conclusion would be patently bizarre and is demonstrably incorrect." ~The Court added a significant, if elementary, observation: "Both the Twenty-first Amendment and the Commerce Clause are parts of the same Constitution. Like other provisions of the Constitution, each must be considered in the light of the other, and in the context of the issues and interests at stake in any concrete case." Id., at 332. See Craig v. Boren, 429 U.S. 190, 206 (1976)...!ll This pragmatic effort to harmonize state

45 1 8. Stewart Co. v. Seagram & Sons, 340 u.s. 211 (1951); United States v. Frankfort Distilleries, Inc., 324 u.s. 293 (1945). In Schwegmann Bros. v. Cal vert Corp., 341 U.S. 384 (1951), for example, a liquor manufacturer attempted to force a distributor to comply with Louisiana's resale price maintenance program, a program similar in many respects to the California scheme at issue here. The Court held that the Louisiana statute violated the Sherman Act and could not be enforced against the distributor. Fifteen years later, the Court rejected a Sherman Act challenge to a New York 1 aw requiring 1 iquor dealers to attest that their prices were "no higher than the lowest price" charged anywhere in the United States. Seagram & Sons v. Hostetter, 3 84 u.s. 35 (1966). The Court concluded that the statute exerted "no irresistible economic pressure on the [dealers] to violate the Sherman Act in order to comply," but it also cautioned that

46 1 9. u.s. 320 (1967) (per curiam). - These decisions demonstrate that there is no bright line between federal and state powers over liquor. The Twenty-first Amendment grants the States virtually complete control over whether to permit importation or sale of liquor and how to structure the liquor distribution system. Although States retain substantial discretion to establish other 1 iquor regulations, those controls may also be subject to the federal commerce power in appropriate situations. The competing state and federal interests can be reconciled only after careful scrutiny of those concerns in a "concrete case." Hostetter v. Idlewild Liquor Corp., 3 77 u.s., at 332. B The federal interest in enforcing the national policy in favor of competition is both familiar and substantial.

47 20. economic freedom and our free-enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms." United States v. Topco Assoc., 405 u.s. 596, 610 (1972) See Northern Pacific Ry. v. United States, 356 U.S. 1, 4, (1958). Although this federal interest is expressed through a statute rather than a constitutional provision, Congress "exercis[ed] all L the power it possessed" under the Commerce Clause when it approved the Sherman Act. Atlantic Cleaners & Dyers v. United States, 286 U.S. 427, 435 (1932); see City of Lafayette v. Louisiana Power & Light Co., 435 U.S., at 398. We must acknowledge the importance of the Act's procompetition policy. The state interests protected by California's resale price maintenance system were identified by the state courts in this case, 90

48 21. those courts are not binding on this Court to the extent that they undercut state rights guaranteed by the Twenty-first Amendment. See Hooven & Allison Co. v. Evatt, 324 U.S. 652, 659 (1945): Creswill v. Knights of Pythias, 225 u.s. 246, 261 (1912). Nevertheless, this Court accords "respectful consideration and great weight to the views of the state's highest court" on matters of state law, Indiana ex rel. Anderson v. Brand, 303 u.s. 95, 100(1938), and we customarily accept the factual findings of state courts in the absence of "exceptional circumstances." Fry Roofing Co. v. Wood, 344 u.s. 157, 160 (1952). The California Court of Appeal stated that its review of the state's system of wine pricing was "controlled by the reasoning of the [California] Supreme Court in Rice [supra]." 90 Cal. App. 3d, at 983, 153 Cal. Rptr., at 761. Therefore, we turn to that opinion's treatment of

49 22. "to promote temperance and orderly market conditions." 21 Cal. 3d, at 451, 579 P.2d, at 490. lll The court found little correlation between resale price maintenance and temperance. It cited a state study showing a 42 % increase in per capita liquor consumption in California from 1950 to 1972, while resale price maintenance was in effect. Id., at , 579 P.2d, at 494, citing California Dept. of Finance, Alcohol and the State: A Reappraisal of California's Alcohol Control Program, xi, 1 5 ( ) Such studies, the court wrote, "at the very least raise a doubt regarding the justification for such laws on the ground that they promote temperance." Ibid. 14/ The Rice opinion identified the primary state interest in orderly market conditions as "protect[ing] small licensees from predatory pricing policies of large retailers." Id. at 456, 579 P.2d, at / In gauging this interest,

50 23. necessary to the economic survival of small retailers. II Ibid. The agency relied on a congressional study of the impact on small retailers of fair trade laws enacted under the Miller-Tydings Act. The study revealed that "states with fair trade laws had a 55 per cent,. I I higher rate of firm failures than free trade states, and the rate of growth of small retail stores in free trade states between 1956 and 1972 was 32 per cent higher than in states with fair trade laws." Ibid., citing S. Rep. No , 94th Cong., 1st Sess. 1 3 (1975). Pointing to the congressional abandonment of fair trade in the 1975 Consumer Goods Pricing Act, see p., supra, the state ':/ " Supreme Court found no persuasive justification to continue "fair trade laws which eliminate price competition among retailers." 21 Cal. 3d, at 457, 579 P.2d, at 494. The Court of Appeal made the same finding with respect to the

51 24. national policy in favor of competition. That evaluation of the State's stake in resale price maintenance for wine is reasonable based on the material cited by the state Supreme Court in Rice. -~ Nothing in the record in this case suggests that the wine pricing system helps sustain small retail establishments. Neither the petitioner nor the State Attorney General has demonstrated that the program inhibits the consumption of alcohol by Californians~ We need not consider whether the legitimate state interests in temperance and the protection of small retailers ever could prevail against the undoubted federal interest in a competitive economy. The unsubstantiated state concerns put forward in this case simply are not of the same statutre as the broad goals of the Sherman Act. We conclude that the California Court of Appeal correctly decided that the Twenty-first

52 Affirmed. 25.

53 DOS, 2/12/80 No , Midcal, Footnotes ll The statute provides: a "Each wine grower, wholesaler licensed to sell wine, wine rectif'ier, and rectifier shall: " (a) Post a schedule of selling prices of wine to retailers or consumers for which his resale price is not governed by a fair trade contract made by the person who owns or controls the brand. - "(b) Make and file a fair trade contract and file a schedule of resale prices, if he owns or controls a brand of wine resold to retailers or consumers." j/ cal. Bus. & Prof. Code (West 1964). 2/ Licensees that sell wine below the prices

54 FN2. 3/ The court cited record evidence that in July 1976, five leading brands of gin each sold in California for $4.89 for a fifth of a gallon, and that five leading brands of scotch whiskey sold for either $8.39 or $8.40 a fifth. Rice v. Alcoholic Beverage Control Appeals Bd., 21 Cal. 3d 4 31, 4 54 J and nn. 14, 16, 579 P.2d 476, and nn. 14, 16 ( 1978). 4/ The State also did not appeal the decision in Capiscean Corp. v. Alcoholic Beverage Control Appeals Bd., 87 Cal. App. 3d 996, 151 Cal. Rptr. 492 ( 1979), which used the analysis in Rice to invalidate California's resale price maintenance scheme for retail wine sales to consumers. The California Retail Liquor Dealers Association, a trade association of independent retail liquor dealers in California, claims over

55 FN3. noted that the repeal of fair trade authority would not alter whatever power the States hold under the Twenty-first Amendment to control liquor prices. S. Rep. No , 94th Cong., 1st Sess. 1 2 (1975); R. H. Rep. No , 94th Cong., 1st Sess. 1 3, n.2 " (1975). We consider the effect of the Twenty-first Amendment on this case in Part III, infra. 7 I In Rice, the California Supreme Court found direct evidence that resale price maintenance resulted in horizontal price fixing. See p. -1 supra, and n.3. Although the Court of Appeal made no such specific finding in this case, the court noted that the wine pricing system "cannot be upheld for the same reasons the retail price maintenance provisions were declared invalid in Rice." Midcal Aluminum Co. v. Rice, 90 Cal. App. 3d 979, 983, 153 Cal. Rptr. 757, 760 (1979).

56 FN4. State Action Doctrine After Goldfarb, Cantor, and Bates, 77 Colum. L. Rev. 898, 916 (1977). 9/ The California program contrasts with the approach of those States that completely control the distribution of liquor within their boundaries. ~' Va. Code 4-15, 4-28 (Repl. Vol. 1979). Such comprehensive regulation would be immune from the Sherman Act under Parker v. Brown, 317 u.s. 341 (1943), since the State would "displace unfettered business freedom" with its own power. New Motor Vehicle Board of Cal if. v. Orr in W. Fox Co., 4 39 U.S. 96, 109 (1978)~ See State Board v. Young's Market Co., 299 U.S. 59, 63 (1936). lqi This approach is not only supported by sound canons of constitutional interpretation but also demonstrates a wise reluctance to try to interpret the complex currents beneath the congressional

57 FN5. control in effect over interstate commerce affecting intoxicating 1 iquors. II 7 6 Cong. Rec (1933) (remarks of Sen. Blaine). Yet he also made statements supporting Midcal's claim that the Amendment was designed only to ensure that "dry" States could not be forced to permit the sale of 1 iquor. See id., at The sketchy records of the state conventions reflect no consensus on the thrust of 2, although delegates at several conventions expressed their hope that l state regulation of liquor traffic would begin immediately. E. Brown, Ratification of the Twentyfirst Amendment to the Constitution 104 (1938) (Wilson, President of the Idaho Convention); id., at (Darnall, President of Maryland Convention); id., at 247 (Gaylord, Chairman of Missouri Convention); id., at (resolution adopted at Washington Convention calling for state action "to regulate the liquor traffic"). See

58 FN6. Beverage Laws -- Experience Under the Twenty-first Jl-- Amendment, 72 Harv. L. Rev. 1145, 1147 (1959). )_ ll/ In Nippert v. City of Richmond, 327 u.s. 416 (1946), the Court commented in a footnote: /) n [E)ven the commerce in intoxicating 1 iquors, over which the Twenty-first Amendment gives the States the highest degree of control, is not altogether beyond the reach of the federal commerce power, at any rate when the State's regulation squarely conflicts with ("'"'- regulation imposed by Congrest,.. ( (id., at 425, n II 12/ Our view of California's interests in its wine pricing system is shaped in part by the unusual posture of this case. As we noted, the state agency responsible for administering the program did not appeal the decision of the California Court

59 FN7. the State Attorney General, who filed a brief amicus curiae in support of the legislative scheme, has specified any state interests protected by the resale price maintenance system other than those noted in the state court opinions cited in text. _!l! The California Court of Appeal found only these same interests in the instant case. 90 Cal. App. 3d, at 984, 153 Cal. Rptr., at That court rejected the suggestion that the wine price program was designed to protect the State's wine industry, pointing out that the statutes "do not distinguish between California wines and imported wines." Ibid. l!/ See Seagram & Sons v. Hostetter, 384 U.S. 35, 39 (1966) (citing study concluding that resale price maintenance in New York State had "no significant effect upon the consumption of

60 FN8. competition, thereby encouraging temperance." 21 Cal. 3d, at 456, 579 P.2d, at 493. The concern for temperance, however, was also considered by the court as an independent state interest in resale price maintenance for liquor. 16/ Since Midcal requested only injunctive relief from the state court, there is no question before us involving liability for damages under 15 U.S.C. 15.